How Turkey Continues To Squander Its Potential Under President Recep Tayyip Erdogan
By Cameron Munter, Skytop Contributor, August 7, 2020
Our focus is on COVID-19, and rightly so. But the world continues, and those who work in business should not neglect developments outside the scope of the virus and its effects in the United States. As the editor of the Financial Times, Roula Khalaf, has written, we do not live in a “one crisis at a time” world. This is one of a series of notes on what’s going on elsewhere.
Turkish President Recep Tayyip Erdogan recently threw his support behind a move to change the status of Istanbul’s iconic Hagia Sophia from a museum to a mosque. The building, completed by Emperor Justinian in 537 as a Byzantine church, became a mosque when Constantinople fell to the Turks in in the 1453, but was changed to its current secular form by Kemal Ataturk after the First World War as part of his creation of modern Turkey. Erdogan’s move has enormous symbolism, not only for religious reasons; but it also has a signal for us about the trajectory governance in Turkey today. It underscores yet again that Turkey’s Kemalist secular elite (including the army) has lost power; it plays well to the pious “common man” especially in rural Anatolia who serve as the backbone of support for Erdogan’s AKP; and it shows yet again that Erdogan has definitively turned away from the path of European integration in favor of a restoration of a neo-Ottoman role as a regional power in which Erdogan himself will supplant Ataturk as the leader who returned the country to its former glory.
This elevation of Erdogan from president to a kind of sultan (and even potentially caliph, in the manner of the Ottoman leaders who were all powerful in both politics and religion) is part of a concentration of power and institution of practices that have far-reaching implications for the Turkish economy, and by extension, for those outside Turkey who might wish to invest there. And those investors have shown a decided discomfort with Erdogan’s rule. Foreign holdings of Turkish equities amounted to 82 billion dollars in 2013; they are now 23 billion. Investors are responding to policies that have led the current account deficit and debt to rise, taking the value of the Turkish lira in dollars from 2:1 in 2013 to 6:1 today. Such policies include restrictions on open trading by foreigners in financial markets. Erdogan himself espouses the theory that interest rates must remain low at all costs, and engages in enormous capital projects like the sparkling new Istanbul international airport and the proposed canal between the Black Sea and the Sea of Marmara that would bypass the Bosporus (and risk significant environmental damage), running huge deficits with these constructs. It’s a statist policy driven by cheap “credit, consumption, and construction” as one critic points out. It doesn’t help that he has driven Turkey’s traditionally able economic and business elite out of power and named instead his son-in-law, Berat Albayrak, as finance minister. These economic moves, coupled with Erdogan’s political crackdown in the wake of a failed 2016 coup attempt, has put countless journalists and academics in jail or in exile and cowed the dynamic private sector leadership which had been thriving in the first decade of this century (when Erdogan, newly in power then as prime minister, was hailed as the model of a pragmatic Islamic leader).
When he first came to power in 2003, Erdogan’s foreign policy team sought to be surrounded by friends: Turkey is situated in a tough neighborhood, and engaged in diplomatically difficult but strategically encouraging outreach to such neighbors as Israel, the Kurds of Northern Iraq, Iran, and Egypt. One by one, as Erdogan’s efforts to define Turkey’s neo-Ottoman role gained momentum, he has steadily achieved the opposite: his former foreign minister (and now political rival) Ahmet Davutoglu points out that Erdogan’s policies toward Syria, Libya, Egypt, Qatar, and even against domestic ethnic Kurds make it such that Turkey is surrounded by unsettled neighbors at best, and new adversaries (such as Israel) at worst. The most obvious challenge is Syria, where the humanitarian tragedy in Idlib is becoming Turkey’s Gaza. Erdogan is picking fights in the Mediterranean over gas and oil, both off Cyprus and off Libya. Certainly Turkey’s relationship with Europe and with the United States is at an all-time postwar low, not only destroying aspirations for EU membership but putting the future of its NATO membership in question as well.
What, then, does this mean for those who would do business in Turkey? Very bleak news, for certain. Erdogan term in power will last through 2024, allowing him to celebrate the centennial of the founding of modern Turkey in 1923 (a point at which he may make further efforts to push aside the legacy of Ataturk and replace it with his own); and indeed, just as Xi Jinping and Vladimir Putin – both of whom are roughly his age — have opened the door to “presidencies for life”, few doubt that Erdogan will do what he can to perpetuate his rule. When he built the gigantic 1000-room presidential palace in Ankara, some wondered openly why there were so many empty offices in a building serving what was, at the time, an honorary office. Now, with constitutional change and a series of initiatives later, those offices are beginning to fill up as traditional democratic structures are replaced by presidential power. Parliamentary opposition is weak, and alternatives to Erdogan are concentrated in local leadership (such as the progressive mayors Ekrem Imamoglu of Istanbul and Mansur Yavas of Ankara, who push back when they can). Competence, innovation and stability are usually among the factors that draw foreign investors into a market, and twenty years ago it seemed that Turkey was an emerging market that had all three. Now, Turkey risks falling back into the “frontier market” category, according to market index provider MSCI. This would mean Turkey would lose it place among the likes of India, Thailand, and South Africa and become a peer of Vietnam, Kuwait, or Morocco – not exactly the vision business leaders had hoped for two decades ago.
As a frontier, rather than emerging market, Turkey would reap the harvest of the purge of competent leadership and acumen, stifling of innovation, and growing instability both domestically and in the region. For those who have always had a soft spot in their hearts for Turkey – for its friendly people and stunning scenery, for its dynamic economic ability and traditions, and for its ability to navigate its way in a difficult and sometimes hostile environment – there’s a deep sadness as the Hagia Sophia decision reminds us of where Turkey is going and how much potential it continues to squander.
Former U.S. Ambassador/Former CEO and President of the EastWest Institute (EWI)